By Corey Stone
Entrepreneur-in-Residence, Financial Health Network
Now more than ever, consumers want and need tools that can help improve their financial health. While fintechs and other innovators have developed a new generation of personal finance tools, banks and credit unions have not yet adopted them widely. Banks already have the customer relationships, the data about their earnings, and knowledge of their spending patterns to incorporate these tools. Since consumers clearly want these innovations, what is the holdup on offering them?
It turns out that offering these services is harder than we thought. Not because of the raw technical difficulty or availability, but because of organizational silos. The core challenge is to get fintech apps to talk with banks’ existing technology stacks and build a shared business case across the organization.
Stacked Against Integration
The prevailing business models of banking technology suppliers have made it hard for upstarts with new consumer solutions to integrate with their platforms, favoring their own “native” apps and bundled solutions so that they can supply as much of their clients’ technology as possible. Even before proving their effectiveness at meeting customer needs, new app developers and banks who want to partner with them must concede a share of control, invest inordinate costs in API licenses, and spend time in integration queues before they can even welcome their first beta customer. Our recent report “What Banks Need from their Technology Stacks to Support Consumer Financial Health’’ lays out some of the key challenges for implementation and integration:
- Continued friction. While challenger platforms offer open APIs and easier integrations for new digital offerings, dominant platform providers will likely keep a lock on many institutions’ systems. In the near term, this means banks and developers will need to access core system data and functions through the data aggregators relied on by most fintechs, or through middleware providers who offer ready integration with the leading core platforms. Both add a layer of unnecessary expense.
- Siloed thinking. Barriers to introducing and testing new service innovations may be as much internal as external. As we talk to banks and credit unions about what it would take to test new services, we’re beginning to recognize the number of internal stakeholders that need to be brought to the table. In their day jobs, none of these people are able to make customers’ financial health their top priority.
- IT inflexibility. IT engineers who operate banks’ core infrastructure and databases determine the priorities, internal transfer prices, and timelines for building new services and functionality. Given the long time frames of these projects, it’s often difficult for them to change course, add needed functionality, or reset project sequences to take advantage of emerging service opportunities.
- Aversion to risk. New products with less proven customer uptake involve questionable returns, requiring more trial-and-error to get product and pricing right, and thus carry greater possibility of lost time and investment. As a result, retail banking business and product leads prioritize incremental enhancements on tried-and-true services over riskier new endeavors.
Stacks and siloes help explain why fintech startups and neobanks who begin with clean technology slates and blue-sky product roadmaps have had an easier time prioritizing their customers’ financial health. Both the vendor systems that shape and constrain banks’ technology stacks, and the need to painstakingly negotiate digital product roadmaps across internal silos and their day-to-day priorities, make new service introductions appear relatively costly and risky.
These two barriers explain why all stakeholders touching banking technology — internal and external — need to be engaged in an institution’s financial health journey.
For more information on the challenges and opportunities around financial services innovation, click here.
Explore the Ends of the Month Series on the Financial Health Network website.